UK: Exploring The Unknown

On Wednesday, 27th January 2010, the Secretary of State for
Energy and Climate Change (DECC) invited applications for Licences
in the 26th Seaward Licensing Round.

For the first time since 1998, this round offers blocks in all
areas of the UKCS for new licensing, some of which were
relinquished under the Government and industry's 'Fallow
Initiative'. Some of the blocks in the 26th Round have never
been explored until now. In addition to this "virgin
territory" the majority of the areas licensed in the 1st Round
in 1964 that have not been allowed extensions have been
relinquished and are included for offer in the 26th Round. The
Areas include: West of Shetland; Northern North Sea; Central North
Sea; Southern North Sea; Morecambe Bay and Irish Sea; West of the
Hebrides; South West Approaches and the English Channel. Some
blocks, however, have been excluded. These include blocks west of
the island of Rockall, northwest of Scotland and various blocks
offered in the 24th Round.

It is known that production from the readily available resources
is in decline and that in order to continue producing oil and gas
within the UK continental shelf exploration in much more demanding
environments will have to be undertaken. It is estimated that there
are around 20 billion barrels of oil equivalent, or potentially
more, that have yet to be produced and that the deep Atlantic
waters hold around a fifth of the remaining reserves.

The Government has introduced a new Frontier licence with an
extended nine-year exploration term for the West of Scotland area,
due to the lack of geographical information available. It is
similar to the existing Frontier licence, which has a term of 6
years as its first term. As per the current Frontier licence the
rental rate in the first three years is reduced by 90% for these
licences. DECC will only consider work Programmes of the
Drill-or-Drop type, which carries no commitment to drill. The
Licence will, however, expire at the end of the first term if the
well has not been drilled. In relation to the West of Scotland
Frontier licences, decisions will be made by the end of the sixth
year and (if the Licensee chooses to drill) drilling should be
completed within the remaining three years.

Concurrent with the 26th Round announcement, the Government
announced it would extend its new field tax allowances worth up to
Ł160 million per field to the west of Scotland fields. It is
estimated that 2.1 billion barrels of oil and gas are available in
the region west of Shetland. Until now these reserves have remained
largely undeveloped due to its challenging conditions and water
depths of 600 metres or more.

It is hoped that the allowance will encourage investment in this
hostile region and spur development of oil and gas reserves in the
area. It is hoped, in particular, that this new allowance will spur
the development of the Laggan-Tormore project – a gas
development situated 140km north-west of the Shetland Islands in
waters 600m deep.

Applications must be submitted by 2.00pm on the 28th April 2010.
DECC encourages applications to be made through their portal based
system called LARRY, although hard copy applications will also be
accepted.

This article was written for Law-Now, CMS Cameron
McKenna's free online information service. To register for
Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance
only. The information and opinions expressed in all Law-Now
articles are not necessarily comprehensive and do not purport to
give professional or legal advice. All Law-Now information relates
to circumstances prevailing at the date of its original publication
and may not have been updated to reflect subsequent
developments.

The original publication date for this article was
29/01/2010.

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